Eroding farm income cuts into sales, profits for agribusiness

WASHINGTON, Aug. 26, 2015 - Prospects for a significant retrenchment this year from previous years’ record farm income are beginning to show in the earnings results reported by several major companies that supply farmers and ranchers and process and market their commodities. Meat and poultry processors’ earnings reports this month range from gains to losses, depending on the commodity.

Deere & Co. announced Friday that net income in its third quarter (ended July 31) dipped to $511.6 million from $850.7 million posted for the same period last year. Deere’s global sales of $7.594 billion were off 20 percent from the prior-year quarter, reflecting the downturn in the farm economy and weaker construction equipment demand. Deere projects equipment sales to end the year about 21 percent down, with a fourth quarter dip of about 24 percent.

Earlier this month, privately-owned Cargill disclosed a net loss of $51 million in its fiscal 2015 fourth quarter (ended May 31), compared with net earnings of $376 million a year earlier. Sales were $28.4 billion, compared with $36.2 billion in the year-ago period. Full fiscal year sales of $120.4 billion were down 11 percent and earnings of $1.58 billion were off 13 percent. The company blamed a “sluggish” economic environment in many countries. Although the global animal nutrition unit increased profit for the full year, it saw weakness in North America “where high cattle costs decreased beef’s competitiveness relative to other meats.”

By contrast, Hormel Foods reported record 2015 third quarter sales volume despite setbacks in its turkey business from avian flu and a 4 percent decline in dollar sales to $2.2 billion. Third quarter net earnings of $146.9 million were up 6 percent from $138 million a year earlier. Profits of grocery and specialty foods showed double-digit gains while its Jennie-O Turkey Store profit fell 45 percent, volume in the unit dropped16 percent and dollar sales fell12 percent to “reflect the substantial impact of the avian influenza outbreak earlier this year.”

Tyson Foods third quarter sales were $10.1 billion, compared to $9.7 billion in the year-earlier period and net income gained to $344 million from $258 million. Its prepared foods and chicken segments were the strongest performers, partially offsetting soft results in beef and pork. The beef side experienced export market disruptions and “very high cattle costs,” Tyson said. As a result, Tyson reduced its expectations for the full fiscal year.

WH Group Limited, Hong Kong-based owner of Smithfield Foods, announced “interim results” for the six months ended June 30. Total sales were $10.2 billion, off 3.2 percent from the same period the previous year. Profits were up 3 percent to $367 million. WH Group noted challenges from “the slowdown in China’s consumer market and the fall in the U.S. pork price.” Hog production volume in the U.S. grew 4.1 percent to 7.85 million head. “Operating profit for our operations in the U.S. declined by 79.3 percent to $28 million as the post-PEDv supply overhang adversely affected hog prices,” it said. PEDv refers to the Porcine Epidemic Diarrhea virus.

Poultry results are mixed. Pilgrim’s Pride reported second quarter 2015 sales of $2.05 billion, compared to $2.19 billion for the same period in 2014, and net income of $241.5 million, a 27 percent improvement from $190.4 million reported a year earlier. Sanderson Farms saw sales dip in its third quarter to $739.9 million from $768.4 million for the same period a year ago and net income declined to $50.9 million, compared with $76.1 million for the same quarter of fiscal 2014. Sanderson noted “export bans related to the discovery of avian influenza in the United States, a relatively strong dollar and lower oil revenue in countries with oil- based economies.”

This week’s guest on Open Mic is Ken Dallmier, President and COO of Clarkson Grain Company. While the global grain business is dominated by supply, demand and now trade wars, this Illinois-based company functions under a customer-focused mindset. Dallmier says this generation of consumer demand is dominated by a different set of social values leading to questions over the way food is produced and the prices they’re willing to pay. Sustainability, organic and non-GMO are providing farmers an income stream isolated from traditional market forces.

Department of Transportation Secretary Elaine Chao and Environmental Protection Agency Acting Administrator of the Andrew Wheeler recently announced their intent to reassess and correct the Corporate Average Fuel Economy standards.

The world of agriculture extends beyond what’s growing in your field or living in your barn, and here at Agri-Pulse, we understand that. We make it our duty to inform you of the most up-to-date agricultural and rural policy decisions being made in Washington D.C. and examine how they will affect you – the farmer, the lobbyist, the government employee, the educator, the consultant and the concerned citizen.